Peach v. CIM Ins. Corp.

• Decision Date: 24 September 2004
• Docket Number: No. 5-03-0684.,5-03-0684.
• Citation: 287 Ill.Dec. 701,816 N.E.2d 668,352 Ill. App.3d 691
• Parties: Armettia PEACH, on Behalf of Herself and All Others Similarly Situated, Plaintiff-Appellee, v. CIM INSURANCE CORPORATION, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

816 N.E.2d 668

352 Ill. App.3d 691

287 Ill.Dec. 701

Armettia PEACH, on Behalf of Herself and All Others Similarly Situated, Plaintiff-Appellee, v. CIM INSURANCE CORPORATION, Defendant-Appellant.

No. 5-03-0684.

Appellate Court of Illinois, Fifth District.

Rule , 2004.

Motion to Publish Granted September 24, 2004.

Opinion Filed September 24, 2004.

Martin K. Morrissey, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C., Edwardsville; Bevin M. Brennan, Kirkland & Ellis, Chicago, for Appellant.

Paul M. Weiss, Freed & Weiss, L.L.C., Chicago; Jeffrey A.J. Miller, The Lakin Law Firm, Wood River, for Appellee.

Justice DONOVAN delivered the opinion of the court:

This is an appeal from the Madison County circuit court's refusal to compel plaintiff Armettia Peach to arbitrate her claims against defendant CIM Insurance Corp. (CIM). On appeal, CIM seeks the reversal of the circuit court's arbitration ruling. This interlocutory appeal followed; we have jurisdiction pursuant to Illinois Supreme Court Rule 307(a)(1) (188 Ill.2d R. 307(a)(1)). We affirm.

BACKGROUND

Armettia Peach filed a class action complaint against CIM for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2000)), common law fraud by misrepresentation, conspiracy to commit consumer fraud, and breach of contract.

CIM sells "Extended Protection Plans" (EPPs) to consumers who purchase automobiles. Peach's complaint alleged that CIM, through Enterprise Car Sales (Enterprise), a car dealership located in Glen Carbon, Illinois, misrepresented to consumers that the full amount paid by the consumers for the EPPs would be passed through to CIM when, in fact, and unknown to the consumers, the dealerships retained a portion of the proceeds. This alleged fraud was accomplished through the "Vehicle Buyer's Order" (VBO), which listed the EPP under the heading "Other Charges," grouped together with other pass-through charges, such as "License Fee" and "Documentary Fee." The accompanying CIM EPP form contract likewise represented that the amount paid for the EPP was passed through to CIM. However, only a portion of the amount listed on these form contracts was "passed through" to CIM for the extended warranties, and the remainder was retained by the dealer.

After the suit was filed, CIM filed a motion to compel arbitration and to stay the litigation of Peach's first amended complaint. CIM premised its entitlement to compel arbitration on the presence of an arbitration provision in the contract between Peach and Enterprise. Pointing to Peach's allegation in her complaint that Enterprise acted as CIM's agent in accomplishing the claimed fraud, CIM argued that, as the alleged principal behind the alleged fraud, CIM should be entitled to enforce the arbitration provision even though CIM was not a signatory to the contract. Peach opposed CIM's motion.

The trial court entered an order denying CIM's motion. According to the order: (i) CIM cannot enforce the arbitration provision in the contract between Peach and Enterprise, (ii) the arbitration provision is unconscionable because it precludes class action relief, (iii) the arbitration provision lacks mutuality of obligations, (iv) the costs of arbitration are prohibitively high, and (v) the arbitration provision is a part of a fraudulent scheme. CIM then filed a notice of interlocutory appeal. We will limit our analysis to whether CIM, as a nonsignatory to the contract between Peach and Enterprise, can enforce the arbitration provision in that contract, because it is dispositive of this case.

ANALYSIS

An order to compel arbitration is injunctive in nature and is appealable under Supreme Court Rule 307(a)(1) (188 Ill.2d R. 307(a)(1)). Salsitz v. Kreiss, 198 Ill.2d 1, 11, 260 Ill.Dec. 541, 761 N.E.2d 724, 730 (2001). Generally, the standard employed in reviewing an interlocutory order granting or denying a motion to compel arbitration is whether the circuit court abused its discretion. Bishop v. We Care Hair Development Corp., 316 Ill.App.3d 1182, 1189, 250 Ill.Dec. 394, 738 N.E.2d 610, 616 (2000). However, a review of a trial court's construction of the arbitration agreement states a question of law that is subject to a de novo standard. Caligiuri v. First Colony Life Insurance Co., 318 Ill.App.3d 793, 800, 252 Ill.Dec. 212, 742 N.E.2d 750, 756 (2000). In reviewing whether CIM must either stipulate to a principal-agency relationship with Enterprise or demonstrate facts proving such a relationship to invoke the arbitration provision in the contract between Peach and Enterprise, we apply a de novo standard of review. In deciding whether there was a sufficient showing in the record to infer a finding of agency, we apply an abuse-of-discretion standard. We will also apply a de novo standard of review in deciding whether CIM should be allowed to compel arbitration based on equitable estoppel.

Initially, we acknowledge that Congress enacted the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq. (1994)) in 1925 "to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts[ ] and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26, 36 (1991). The FAA reflects a "liberal federal policy favoring arbitration agreements" (Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983); Borowiec v. Gateway 2000, Inc., 209 Ill.2d 376, 384, 283 Ill.Dec. 669, 808 N.E.2d 957, 962 (2004)) and provides for orders compelling arbitration when one party has failed, neglected, or refused to comply with an arbitration agreement (9 U.S.C. § 4 (1994)). Ervin v. Nokia, Inc., 349 Ill.App.3d 508, 510, 285 Ill.Dec. 714, 812 N.E.2d 534, 537 (2004).

CIM argues that pursuant to Caligiuri v. First Colony Life Insurance Co., 318 Ill.App.3d 793, 800, 252 Ill.Dec. 212, 742 N.E.2d 750, 756 (2000), a nonsignatory to an arbitration clause can invoke an arbitration agreement under an agency theory. We agree. But we also note that Caligiuri held, "Under either federal or Illinois law, the right to compel arbitration stems from an underlying contract and generally may not be invoked by a nonsignatory to the contract." Caligiuri, 318 Ill.App.3d at 800, 252 Ill.Dec. 212, 742 N.E.2d at 755. In addition, the court in Caligiuri found that the nonsignatory in its case could not invoke the arbitration clause because it had failed to show it was the agent of the signatory to the arbitration agreement. Specifically, the court stated:

"In sum, MLLA presented some evidence that it was controlled by MLPF & S[] but that such control was limited by state insurance laws and stock exchange requirements. MLLA did not point to evidence in the record showing that it had the ability to conduct legal transactions in the name of MLPF & S. The trial court, as the trier of fact, found that MLLA failed to show it was an agent of MLPF & S in this context. Given the record on appeal, the trial court's ruling was not arbitrary or clearly erroneous." Caligiuri, 318 Ill.App.3d at 803,252 Ill.Dec. 212,742 N.E.2d at 758.

In addition to Caligiuri, we find that our opinion in Ervin v. Nokia, Inc., 349 Ill.App.3d 508, 285 Ill.Dec. 714, 812 N.E.2d 534 (2004), is determinative of the issue in this case. In Ervin, Ervin, a phone user, brought a putative class action against phone manufacturer Nokia, Inc. (Nokia), and phone service providers AT & T Corp., AT & T Cellular Services, Inc., and American Telephone & Telegraph Company (AT & T) to recover damages for the alleged manufacture and sale of a defective product. AT & T's motion to stay proceedings and compel arbitration was granted. Nokia also moved to stay proceedings and compel arbitration based on the arbitration provision in AT & T's contract with Ervin. The trial court denied the motion. Nokia filed an interlocutory appeal. We found that Nokia was not a party to the service contract, that Nokia was not a principal or agent of the service provider, that Nokia was not a third-party beneficiary of the contract, and finally, that Nokia could not compel arbitration pursuant to principles of equitable estoppel. Specifically, in Ervin we stated:

"Here, Nokia not only does not allege that it is the agent or principal of AT & T, but it steadfastly denies any suggestion that Nokia is in any way related to AT & T. Nokia's argument is that it should be allowed to enforce the arbitration clause contained in the WSG because Ervin's amended complaint implies an agency theory of liability. Nokia did not ask the court to make a finding that it was the agent or principal of AT & T, although it could have requested that finding based on Ervin's original pleading in which he alleged an agency between Nokia and AT & T. See Pettigrew v. Putterman, 331 Ill.App.3d 633, 641, 265 Ill.Dec. 49, 771 N.E.2d 1008, 1014 (2002) (`The admissions of a party contained in an unverified original pleading that has been superseded by an amended pleading are not binding judicial admissions; however, such admissions may be used at trial as evidence of the matter admitted'). If the court had made a factual determination that Nokia was the agent or principal of AT & T, then Nokia would have been judicially estopped from taking a different position in the subsequent resolution of this matter (see Johnson v. Du Page Airport Authority, 268 Ill.App.3d 409, 416, 206 Ill.Dec. 34, 644 N.E.2d 802, 807 (1994) (`The doctrine of judicial estoppel prohibits parties from adopting inconsistent legal positions in separate legal proceedings')), and this would have been inconsistent with Nokia's evident desire to distance itself from AT & T in the resolution of this dispute, whether it takes place in the courts or through arbitration. Considering the fact that Nokia contends it

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